MNI Policy: China's Deleveraging Campaign Could Take Decades

     BEIJING (MNI) - Chinese top policymakers have sent a clear signal that

deleveraging will be a long-term task as high leverage ratio are still at the

root of China's financial risks, an advisor to the government said during the

China Bond Market Forum on Saturday in Beijing.

     "It is never like what some media reported that China's deleveraging

campaign has been completed," said Li Yang, director of the Institute of Finance

and Banking at the Chinese Academy of Social Sciences.

     The Central Economic Work Conference(CEWC) last week, which set the tone

for economic planning in 2019, reiterated that deleveraging is still China's

major task to prevent and resolve financial risks, Li said.

     The CEWC advocated that China should focus on "structural deleveraging,"

that is cutting the leverage ratio in certain sectors with outstanding problems,

Li said. 

     The campaign kicked off in November 2015 and has been through serval

phrases, including broad based deleveraging, deleveraging in certain areas and

stabilizing the leverage ratio at the current level, Li added.

     Liu Shijin, deputy director of the Economic Committee of the Chinese

People's Political Consultative Conference(CPPCC), also said in the same forum

that the deleveraging campaign could take decades or more due to its complexity.

     Liu said that it was also necessary to deal with systemic and policy issues

which could hinder the reduction of tghe leverage ratio, including local

governments and state-owned enterprises' credit expansion with implicit

guarantees by the central government, as well as the financing difficulties of

private companies.

     - Soft Deposit Growth

     Li, a long-term participant of economic policy-making, was concerned about

soft deposit growth, both individual and corporate deposit, which has lagged

down the money supply.

     "We have seen the central bank made big efforts, including a targeted

policy rate cut. Other financial institutions are passive in the process," the

economist said.

     Li stressed that the principle of competitive neutrality has been widely

accepted, so more rules and laws would be made to guarantee the equality between

state-owned and private companies.

     - GDP At 6.2%

     Liu, a member of PBOC's monetary policy committee, said that the economy

would continue to faces headwinds next year. The biggest uncertainty is around

exports, which have been under pressure from trade conflicts, and would soften

further as some exporters had brought business forward in light of the mounting

conflicts. 

     The property market and infrastructure investment growth are expected to

fall further but at a moderate pace.

     It is necessary to keep 6.2% GDP growth next year considering the target of

building a moderately well-off society by 2020, Liu said.

     "After 2020, the average rate for medium growth would be about 5% to

6%...we think the medium growth would remain in 10 years or even longer," he

said.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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